Paying Late Penalties for Medicare

Time is money

Part A Part B Late Penalties Time is Money
Time is money when it comes to Medicare's late penalties. John Lund/Blend Images/Getty Images

Time is money, especially when it comes to Medicare's late penalties. These penalties are charged if you miss your Initial Enrollment Period (IEP) for Medicare. They could cost you hundreds to thousands of dollars over the life of your Medicare experience.

Who Can Avoid Late Penalties

Some people are automatically enrolled in Original Medicare and will never have to worry about paying late penalties for Part A and Part B.

This includes people who:

If for any reason, you are automatically enrolled but do not want your Medicare benefits at age 65, i.e. if you have other health coverage, you will have to contact their local Social Security office to disenroll in this case. Otherwise, you will be obligated to pay those premiums.

Please note that Part D is not part of Original Medicare and there are slightly different rules for those late penalties.

How to Avoid Late Penalties

Since the retirement age for full Social Security benefits is now 67 years old, most people will defer Social Security when they turn 65 to maximize their future income. This means most people will not be automatically enrolled and will actively have to apply for Medicare.

To avoid late penalties, you must sign up during your Initial Enrollment Period.

This starts three months before and ends three months after your 65th birthday. If you have a qualifying employer-sponsored health plan, you may be eligible for a Special Enrollment Period (SEP) that allows you to defer your IEP based on your age. This SEP begins when you leave your job or health plan, whichever comes first, and lasts for eight months.

As long as you enroll in Part A and Part B during one of these enrollment periods, you will stay clear of late penalties.

Calculating Part A Late Penalties

The majority of Americans get their Part A premiums for free if they or their spouse contributed 40 quarters (10 years) of Medicare taxes through their job. Since any percent of zero is zero, they will not be subjected to late penalties. For those who do have to pay late penalties, the costs add up as follows.  

  • COST: 10 percent added to monthly premium
  • DURATION: Twice the # of years of missed eligibility

Example: If you applied 2 years after you were eligible, 10% will be added to the monthly premium for 4 years.

Calculating Part B Late Penalties

Part B late penalties pack a bigger punch. Everyone is required to pay a premium for Part B. Those premium rates increase as you earn a higher income. These penalties are long-standing.

  • COST: 10 percent added to monthly premium for every year of missed eligibility
  • DURATION: As long as you have Medicare
  • LATE PENALTY CALCULATION: 0.10 x Premium x # Years of missed eligibility

Example: If you applied 2 years after you were eligible, 20% will be added to your monthly premium as long as you have Medicare.

How to Reverse Late Penalties

The unfortunate truth is that while late penalties for Part A have a stop date Part B penalties usually do not. If you were younger than 65 years when you first became eligible for Medicare, however, you may have a way out. You get a new Initial Enrollment Period when you turn 65. As long as you do not miss this second IEP, your former late penalties will be stopped.

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